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Here is a list of the reasons that franchisors fail. Some of the following ingredients for franchisor failure will seem to be duplications in some situations and not in others. Many do not apply to many situations, various combinations apply and some can obviously be expanded upon. These are in no real order;
And my favourites ...
You can now add to this list or you may argue redundancy. When I typed the word ‘bankrupt' into the BMM search it came back with 17 pages of hits. The results obviously didn't all relate to failed franchise concepts but there are many. That search will be worth checking at the end of 2009.
One thing is for sure; if due diligence of a franchise offering does not produce evidence of any these effects then you would expect to be on a ‘winner'. It should also be clear that an investigation of a franchise offering should not be limited to reviewing the franchise contract and the disclosure document and speaking to past and present franchisees.
When a franchisor eventually fails there is usually a long history of franchisees who failed before any combination of these effects caught up with the franchisor. A bankrupt franchisee will not bring down a franchisor but a bankrupt franchisor will probably see a trustee looking for a buyer where the franchisees' investment has been markedly diminished. When a franchisor fails he may have an off-shore account; when a franchisee goes under he/she usually sees everything go down and few families survive to reminisce about the bad old days.
How many prospective franchisees are capable of such a risk evaluation? How many 'professionals' are capable or prepared to undertake such risk evaluation?